illcrx wrote:You pose an interesting point about the stock market, it does take a long time to recover from significant losses. International or domestic, today were only getting back to the levels of 2008 and were still not quite there yet.
The best way I think is to actively manage your portifolio, before the market tanks you need to get into a low risk mutual fund. Then when the markets bottom you need to get back into risky funds.
You'll find that this doesn't work, because the market isn't just for you, and everyone else knows the same thing. If you expect a stock to be worth $40 next year, based on the same information that institutional investors such as pension funds and endowments have, then they also expect it to be worth $40. And they can act on it; if someone is willing to buy at $50, they can sell stock until all the buyers at $50, and $45, and even $41, are gone, driving the price down to the correct $40 (or actually $38 given normal stock returns.)
And even the experts can't do it; institutional investors lost money along with everyone else in the 2007-2009 crash.
The key is to understand the risk, and only take the risk that you are prepared to take. If you are going to retire in five years, you don't want to take the risk of having all that money in the stock market; you would want to mix stocks and bonds. Vanguard Target Retirement 2015 is currently 55% stock and will decrease in the future, and it gained 2.89% annually over the last five years. Conversely, if you are planning to retire in 2040, you don't care what your retirement portfolio is worth in 2017, only what it is worth in 2040 and later, so you can take the risk that there will be five-year periods in which the market loses a lot, and five-year periods in which the market more than doubles; you might use a fund like Vanguard Target Retirement 2040 which is 90% stock and is just about even with its 2007 peak.